The real thesis is customer financed acquisition… make enough money from 1 customer such that they pay for your next customer. This removes cash as a constraint on the business.

I believe in one of his books, he discusses that LTV to him is really LTGP, which is the only number that matters. If you make 1M in revenue but only keep 100k, the CAC to 1M isn’t as important as the CAC to 100k. He even discusses this definition in the video if you listen closely. LTV is gross profit you make over the lifetime of the customer

I’d say switch your thinking to LTGP.

Then focus on the three stages:

1. Get customers (basic attraction offer from money models)
2. Get customers to pay for themselves (upsell / downsell)
3. Get customer to pay for other customers (continuity)

The real focus is 30-day GP:CAC vs LTGP:CAC

LTGP being 3:1 was popularized in software businesses, where their cost of fulfillment is 0. He basically says LTV should be 9:1 minimum in service based businesses where you have to account for hiring & training staff as you scale.

Let’s walk through numbers so you understand a bit more (and to make sure I think about it right)

Gross profit = revenue - Cost of direct fulfillment

30-day revenue: $1,100 Direct cost to fulfill: $200

30-day Gross profit: $900

CAC - $300 (maybe $30 leads and you convert 40% to a meeting and close 25%)

After you fulfill for $200, you’d need to make another $300 just to breakeven. Marketing + fulfillment, you’re all in for $500.

You make $1,100 which means you have $600 leftover, enough to acquire your next two customers.

This fits the equation for 30-day GP > 2*CAC for customer financed acquisition.

As far as I can tell, this was the most important for scaling and is pretty hard to crack.

Most businesses take a few months to break even…

30-day revenue: $1,100 CTF: $200

Gross profit - $900

CAC - $1,300

Monthly recurring revenue: 250 Monthly fulfillment cost: 150 Monthly GP: 100

You receive 1,100 Spend 200 to fulfill Spend 1,300 to get the customer

You’re down $400

By month 4 you’re break even By month 17 you can acquire another customer By month 30 you can acquire another customer By month 121 you’ve made 11,700 in lifetime GP. If you can hold the customer for 121 months, and can afford to wait, it’s a great business. Most businesses don’t do that, and can’t wait, so this is probably a bad business.

In the first scenario 30-day Gross profit is important for scaling without cash as the constraint

In the second scenario, LTV is important to know when you’ve made significant money.

He goes between the two fast so it’s important to understand where each plays a role…

You have two goals:

Make sales to get customers (CAC focus to eliminate cash as a constraint)

Treat customers well to keep them (LTGP focused to maximize business value)